As momentum continues to build within the reinsurance sidecar market, these structures are increasingly viewed as an attractive capital sourcing opportunity for managing general agents (MGAs), and investment for ILS managers, hedge or pension funds, and family-office investors, according to Willis Re.
However, the firm indicates that a developing trend is being seen among MGAs regarding their adoption of sidecar structures as a significant method for acquiring underwriting capital.
“They have tapped conventional insurers and capital-markets investors alike for their capacity. The trend is likely to continue because it moves capital providers much closer to the source of risk and removes frictions from the value chain. A licensed fronting insurer is needed; they may choose to retain a share of the risk ceded to the sidecar, or pass all of it on to third-party investors,” Willis Re said.
The firm continued: “Either way, sidecars are an efficient way for MGAs to garner underwriting capital. Expect such applications to be increasingly influential over the structure of the reinsurance market in the medium term.”
Willis Re additionally noted that for convention risk carriers, reinsurance sidecars can offer additional underwriting capital or surplus relief when solvency tolerance levels are approaching.
While the firm also acknowledged that these structures can function similarly to traditional proportional reinsurance to facilitate growth by enabling the acceptance of greater risk.
“For syndicated underwriting involving multiple carriers covering the same risk, sidecars allow underwriters to deploy larger lines on each risk they underwrite, which makes a market more attractive to placing brokers,” Willis Re added.
The firm also noted that a variety of benefits makes sidecar investment attractive for ILS managers, hedge and pension funds, and family-office investors.
Investing in sidecars grants them direct access to the profits generated from insurance underwriting, thereby delivering significant risk and income diversification benefits.
“The frictional costs of investing in insurance risk through insurance-company equities are eliminated, as is the credit risk associated with insurers’ corporate bonds,” Willis Re said.
“The risk-free rate of return should be accrued at minimum when sidecars are collateralized, but when security is simply pledged, the risk capital deployed can be invested elsewhere. This Buffetesque “float” provides an advantage which has made sidecars supporting long-tail casualty risk, including legacy risk, popular throughout their history and even more popular lately.”
To end, Willis Re affirms that sidecars are an effective tool that cedants use to build and expand their business and ease balance-sheet pressures.
Willis Re emphasises that sidecar structures are distinctive in the market because of their flexibility and efficiency, their ease of establishment, reliability, and the increasing interest from institutional investors in insurance risk as an asset class.
“They are popular for property cat exposures, but equally viable for whole-account capacity, casualty books and even specialty risks ranging from offshore to cyber. They can even be used, with a fronting partner in the loop, to provide capital to MGAs. Expect to see the recent run of new formations continue,” the firm concluded.
Broker Aon previously reported that the outstanding market for collateralized reinsurance sidecar structures had expanded to reach a new record high of $17 billion at the middle of 2025, which represents around 70% expansion of this ILS market segment in just one year.
Find details of numerous reinsurance sidecar arrangements in our directory of collateralized reinsurance and similar sidecar transactions.
